Chap. II. We have substituted throughout this book, the term demand, to express the idea we conveyed in the last by that of wants; and since the subject becomes more complex, and that we have many more relations to take in, I must make a recapitulation of all the different acceptations of this term demand.
Demand, in the first place, is always relative to merchandize; it is the buyer who demands; the seller offers to sale. 2. It is said to be reciprocal, when there is a double operation, that is, when the seller in the first, becomes the buyer in the second case; and then, taking the two operations in one view, we call those demanders who have paid the highest price. 3. Demand is simple, or compound; simple, when there is no competition among the buyers; compound, when there is. 4. It is great or small, according to the quantity demanded. And 5. high or low, according to the price offered. The nature of a gradual increase of demand, is to encourage industry, by augmenting the supply; that of a sudden increase, is to make prices rise. This principle has not every where the same efficacy in producing these varieties: it is checked in its operations between merchants, who seek their profit; and it is accelerated among private people, who seek for subsistence, necessaries, or luxurious gratifications.
Chap. III. I come next to deduce the origin of trade and industry, which I discover from the principles of the first book, where bartering of necessaries was understood to be trade; and I find that the progress of this is owing to the progress of multiplication and agriculture. When a people arrive at a moral impossibility of increasing in numbers, there is a stop put to the progress of barter. This grows into trade, by the introduction of a new want (money) which is the universal object of desire to all men. While the desires of man are regulated by their physical wants, they are circumscribed within certain limits. So soon as they form to themselves others of a political nature, then all bounds are broken down. The difficulty of adapting wants to wants, naturally introduces money, which is an adequate equivalent for every thing. This constitutes sale, which is a refinement on barter. Trade is only a step farther; it is a double sale, the merchant buys, not for himself, but for others. A merchant is a machine of a complex nature. Do you want, he supplies you; have you any superfluities, he relieves you of them; do you want some of the universal equivalent money, he gives it you, by creating in you a credit in proportion to your circumstances. The introduction of so useful a machine, prompts every one to wish for the power of using it; and this is the reason why mankind extend their labour beyond the mere supply of their physical wants.
Trade therefore abridges the tedious operations of sale and barter, and brings to light many things highly important for individuals, who live by relieving the wants of others, to know. It marks the standard of demand, which is, in a manner, the voice of the statesman, conducting the operations of industry towards the relief of wants; and directing the circulation of subsistence towards the habitations of the necessitous.
Chap. IV. The consequence of this, is to determine the value of commodities, and to mark the difference between prime cost and selling prices. The first depends upon the time employed, the expence of the workman, and the value of the materials. The second is the sum of these, added to the profit upon alienation. It is of consequence to distinguish exactly between these two constituent parts of price, the cost and the profit: the first is invariable after the first determination, but the second is constantly increasing, either from delay in selling off, or by the multiplicity of alienations; and the more exactly every circumstance with regard to the whole analysis of manufactures is examined, the easier it is for a statesman to correct every vice or abuse which tends to carry prices beyond the proper standard.
Chap. V. Nothing tends to introduce an advantageous foreign trade more than low and determined prices. In the first place, it draws strangers to market. This we call passive commerce. Secondly, it gives merchants an opportunity to distribute the productions of their country with greater advantage among other nations, which is what we call active foreign trade. In this chapter, I trace the effects of the last species. I shew how merchants profit at first of the ignorance of their correspondents; how they engage them to become luxurious; how the competition between themselves, when profits are high, make them betray one another; and how the most ignorant savages are taught to take advantage of the discovery; how this intercourse tends to unite the most distant nations, as well as to improve them; and how naturally their mutual interest leads them to endeavour to become serviceable to one another.
Chap. VI. I next endeavour to shew the effects of trade upon those nations who are passive in the operation. Here I take an opportunity of bringing in a connexion between the principles of trade, and those of agriculture, and I shew on what occasions passive trade may tend to advance the cultivation of lands, and when it cannot. Upon this, I build a principle, that when passive trade implies an augmentation of the domestic consumption of subsistence, in order to carry it on, then will agriculture be advanced by it, and not otherwise; and as the first is commonly the case, from this I conclude, that trade naturally has the effect of increasing the numbers of mankind in every country where it is established. I next trace the consequences of a growing taste for superfluity, among nations living in simplicity; and I shew how naturally it tends to promote industry among the lower classes, providing they be free; or to make them more laborious, supposing them to be slaves: from which I conclude, that where the advancement of refinement requires the head, that is, the ingenuity and invention of man, those who are free have the advantage; and where it requires hands, that is to say labour, that the advantage is on the side of the slaves: slavery, for example, might have made Holland; but liberty alone could have made the Dutch.
Chap. VII. Having given a rough idea of trade in general, I come to a more accurate examination of the principles which a statesman must keep in view, in order to carry it to perfection, by rendring it a means of promoting ease and affluence at home, as well as power and superiority abroad. As a private person becomes easy in his circumstances in proportion to his industry, and so rises above the level of his fellows, in like manner, does an industrious nation become wealthy, and acquires a superiority over all her less industrious neighbours.
The principle which set trade on foot we have shewn to be demand, what supports it and carries it to its perfection is competition. These terms are often confounded, or at least so blended together as to produce ideas incorrect, dark, and often contradictory: for this reason I have judged an analysis of them necessary, comparing them together, and pointing out their relations, differences, and coincidences.
Demand and competition are both relative to buying and selling; but demand can only be applied to buying, and competition may be applied to either.